TENNANT CO - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to __________

Commission File Number 1-16191

____________________________________

TENNANT COMPANY

(Exact name of registrant as specified in its charter)



Minnesota	41-0572550
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

701 North Lilac Drive

P.O. Box 1452

Minneapolis, Minnesota 55440

(Address of principal executive offices)

(Zip Code)

(763) 540-1200

(Registrant’s telephone number, including area code)

______________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.375 per share	TNC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes	☑	No	☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).



Yes	☑	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes	☐	No	☑

As of October 18, 2019, there were 18,266,899 shares of Common Stock outstanding.

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Statements of Earnings	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Balance Sheets	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Equity	9
	Notes to the Consolidated Financial Statements	11
	1. Summary of Significant Accounting Policies	11
	2. Newly Adopted Accounting Pronouncements	11
	3. Revenue from Contracts with Customers	12
	4. Management Actions	13
	5. Acquisition	14
	6. Inventories	15
	7. Goodwill and Intangible Assets	15
	8. Debt	16
	9. Warranty	17
	10. Derivatives	17
	11. Fair Value Measurements	21
	12. Retirement Benefit Plans	22
	13. Leases	22
	14. Commitments and Contingencies	24
	15. Accumulated Other Comprehensive Loss	24
	16. Income Taxes	24
	17. Share-Based Compensation	25
	18. Earnings Attributable to Tennant Company Per Share	25
	19. Separate Financial Information of Guarantor Subsidiaries	25
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	43
Signatures		44

PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

TENNANT COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

	Three Months Ended						Nine Months Ended
(In millions, except shares and per share data)	September 30						September 30
	2019			2018			2019			2018
Net Sales	$	280.7		$	273.3		$	842.8		$	838.3
Cost of Sales	166.7			166.7			499.8			505.4
Gross Profit	114.0			106.6			343.0			332.9

Operating Expense:
Research and Development Expense	8.2			7.5			23.8			23.4
Selling and Administrative Expense	84.3			83.7			267.0			264.7
Total Operating Expense	92.5			91.2			290.8			288.1
Profit from Operations	21.5			15.4			52.2			44.8

Other Income (Expense):
Interest Income	0.8			0.8			2.5			2.5
Interest Expense	(5.2		)	(6.0		)	(15.7		)	(17.7		)
Net Foreign Currency Transaction Losses	(0.6		)	(0.3		)	(0.6		)	(1.4		)
Other Income (Expense), Net	0.1			—			1.4			(0.8		)
Total Other Expense, Net	(4.9		)	(5.5		)	(12.4		)	(17.4		)

Profit Before Income Taxes	16.6			9.9			39.8			27.4
Income Tax Expense	2.0			0.2			5.0			1.6
Net Earnings Including Noncontrolling Interest	$	14.6		$	9.7		$	34.8		$	25.8
Net Earnings Attributable to Noncontrolling Interest	$	—		$	—		$	—		$	0.1
Net Earnings Attributable to Tennant Company	$	14.6		$	9.7		$	34.8		$	25.7

Net Earnings Attributable to Tennant Company per Share:
Basic	$	0.81		$	0.54		$	1.93		$	1.43
Diluted	$	0.79		$	0.52		$	1.89		$	1.40

Weighted Average Shares Outstanding:
Basic	18,134,909			17,998,917			18,086,962			17,911,880
Diluted	18,487,948			18,439,621			18,402,929			18,344,813

See accompanying Notes to the Consolidated Financial Statements.

TENNANT COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended						Nine Months Ended
(In millions)	September 30						September 30
	2019			2018			2019			2018
Net Earnings Including Noncontrolling Interest	$	14.6		$	9.7		$	34.8		$	25.8
Other Comprehensive Loss:
Foreign currency translation adjustments	(12.6		)	(3.1		)	(13.5		)	(14.2		)
Pension and retiree medical benefits	—			—			—			0.1
Cash flow hedge	1.7			—			4.3			(1.4		)
Income Taxes:
Foreign currency translation adjustments	0.1			0.3			0.1			0.6
Pension and retiree medical benefits	—			—			—			(0.2		)
Cash flow hedge	(0.4		)	—			(1.0		)	(0.8		)
Total Other Comprehensive Loss, net of tax	(11.2		)	(2.8		)	(10.1		)	(15.9		)

Total Comprehensive Income Including Noncontrolling Interest	3.4			6.9			24.7			9.9
Comprehensive Income Attributable to Noncontrolling Interest	—			—			—			0.1
Comprehensive Income Attributable to Tennant Company	$	3.4		$	6.9		$	24.7		$	9.8

See accompanying Notes to the Consolidated Financial Statements.

TENNANT COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)

	September 30,			December 31,
(In millions, except shares and per share data)	2019			2018
ASSETS
Current Assets:
Cash, Cash Equivalents, and Restricted Cash	$	71.7		$	86.1
Receivables:
Trade, less Allowances of $3.2 and $2.5, respectively	204.9			208.0
Other	7.8			8.2
Net Receivables	212.7			216.2
Inventories	160.9			135.1
Prepaid and Other Current Assets	34.2			31.2
Total Current Assets	479.5			468.6
Property, Plant and Equipment	411.6			386.6
Accumulated Depreciation	(244.1		)	(223.2		)
Property, Plant and Equipment, Net	167.5			163.4
Operating Lease Assets	46.2			—
Goodwill	185.4			182.7
Intangible Assets, Net	139.5			146.5
Other Assets	27.0			31.3
Total Assets	$	1,045.1		$	992.5
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Current Portion of Long-Term Debt	$	20.2		$	27.0
Accounts Payable	93.9			98.4
Employee Compensation and Benefits	52.9			56.1
Other Current Liabilities	102.9			67.4
Total Current Liabilities	269.9			248.9
Long-Term Liabilities:
Long-Term Debt	322.2			328.1
Long-Term Operating Lease Liabilities	29.8			—
Employee-Related Benefits	19.5			21.1
Deferred Income Taxes	42.4			46.0
Other Liabilities	21.5			32.1
Total Long-Term Liabilities	435.4			427.3
Total Liabilities	705.3			676.2
Commitments and Contingencies (Note 14)
Equity:
Common Stock, $0.375 par value; 60,000,000 shares authorized; 18,254,017 and 18,125,201 shares issued and outstanding, respectively	6.8			6.8
Additional Paid-In Capital	39.7			28.5
Retained Earnings	339.1			316.3
Accumulated Other Comprehensive Loss	(47.3		)	(37.2		)
Total Tennant Company Shareholders' Equity	338.3			314.4
Noncontrolling Interest	1.5			1.9
Total Equity	339.8			316.3
Total Liabilities and Total Equity	$	1,045.1		$	992.5

See accompanying Notes to the Consolidated Financial Statements.

TENNANT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
(In millions)	September 30
	2019			2018
OPERATING ACTIVITIES
Net Earnings Including Noncontrolling Interest	$	34.8		$	25.8
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation	24.0			24.1
Amortization of Intangible Assets	16.6			17.4
Amortization of Debt Issuance Costs	1.0			1.9
Fair Value Step-Up Adjustment to Acquired Inventory	0.9			—
Deferred Income Taxes	(2.7		)	(9.9		)
Share-Based Compensation Expense	8.7			6.0
Allowance for Doubtful Accounts and Returns	1.6			0.8
Acquisition Contingent Consideration Adjustment	(1.8		)	—
Note Receivable Write-down	2.7			—
Other, Net	(0.7		)	(0.5		)
Changes in Operating Assets and Liabilities, Net of Assets Acquired:
Receivables, Net	(0.8		)	(0.3		)
Inventories	(31.4		)	(19.5		)
Accounts Payable	(2.3		)	(1.8		)
Employee Compensation and Benefits	(0.8		)	4.2
Other Current Liabilities	(0.8		)	(0.2		)
Other Assets and Liabilities	(2.8		)	(4.4		)
Net Cash Provided by Operating Activities	46.2			43.6
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment	(28.3		)	(12.7		)
Proceeds from Disposals of Property, Plant and Equipment	0.1			0.1
Proceeds from Principal Payments Received on Long-Term Note Receivable	0.1			0.8
Acquisition of Businesses, Net of Cash, Cash Equivalents and Restricted Cash Acquired	(8.9		)	—
Proceeds from Sale of Business	—			4.0
Purchase of Intangible Assets	(0.5		)	(2.6		)
Net Cash Used in Investing Activities	(37.5		)	(10.4		)
FINANCING ACTIVITIES
Proceeds from Credit Facility Borrowings	25.0			—
Repayments of Debt	(37.9		)	(30.2		)
Change in Finance Lease Obligations	(0.2		)	—
Proceeds from Issuance of Common Stock	2.8			5.7
Purchase of Noncontrolling Owner Interest	(0.5		)	—
Dividends Paid	(12.0		)	(11.3		)
Net Cash Used in Financing Activities	(22.8		)	(35.8		)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(0.3		)	(2.3		)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	(14.4		)	(4.9		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	86.1			59.0
Cash, Cash Equivalents and Restricted Cash at End of Period	$	71.7		$	54.1



Supplemental Disclosure of Cash Flow Information:
Cash Paid for Income Taxes	$	12.6	$	7.3
Cash Paid for Interest	$	10.6	$	11.3
Supplemental Non-cash Investing and Financing Activities:
Capital Expenditures in Accounts Payable	$	1.1	$	0.6

See accompanying Notes to the Consolidated Financial Statements.

TENNANT COMPANY

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In millions, except shares and per share data)



	Tennant Company Shareholders
	Common Shares	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Tennant Company Shareholders' Equity			Noncontrolling Interest			Total Equity
Balance, December 31, 2018	18,125,201	$	6.8	$	28.5	$	316.3		$	(37.2	)	$	314.4		$	1.9		$	316.3
Net Earnings		—		—		5.4			—			5.4			—			5.4
Other Comprehensive Loss		—		—		—			(1.3		)	(1.3		)	—			(1.3		)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 6,952 shares	35,338	—		0.2		—			—			0.2			—			0.2
Share-Based Compensation		—		3.3		—			—			3.3			—			3.3
Dividends paid $0.22 per Common Share		—		—		(4.0		)	—			(4.0		)	—			(4.0		)
Recognition of Noncontrolling Interests		—		—		—			—			—			0.3			0.3
Balance, March 31, 2019	18,160,539	$	6.8	$	32.0	$	317.7		$	(38.5	)	$	318.0		$	2.2		$	320.2
Net Earnings		—		—		14.8			—			14.8			—			14.8
Other Comprehensive Income		—		—		—			2.4			2.4			—			2.4
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 3,310 shares	31,947	—		0.3		—			—			0.3			—			0.3
Share-Based Compensation		—		1.7		—			—			1.7			—			1.7
Dividends paid $0.22 per Common Share		—		—		(4.0		)	—			(4.0		)	—			(4.0		)
Recognition of Noncontrolling Interests		—		—		—			—			—			(0.3		)	(0.3		)
Purchase of Noncontrolling Owner Interest		—		0.5		—			—			0.5			(0.5		)	—
Other		—		—		—			—			—			0.1			0.1
Balance, June 30, 2019	18,192,486	$	6.8	$	34.5	$	328.5		$	(36.1	)	$	333.7		$	1.5		$	335.2
Net Earnings		—		—		14.6			—			14.6			—			14.6
Other Comprehensive Loss		—		—		—			(11.2		)	(11.2		)	—			(11.2		)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 1,560 shares	61,531	—		1.5		—			—			1.5			—			1.5
Share-Based Compensation		—		3.7		—			—			3.7			—			3.7
Dividends paid $0.22 per Common Share		—		—		(4.0		)	—			(4.0		)	—			(4.0		)
Balance, September 30, 2019	18,254,017	$	6.8	$	39.7	$	339.1		$	(47.3	)	$	338.3		$	1.5		$	339.8



	Tennant Company Shareholders
	Common Shares	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Tennant Company Shareholders' Equity			Noncontrolling Interest			Total Equity
Balance, December 31, 2017	17,881,177	$	6.7	$	15.1	$	297.0		$	(22.3	)	$	296.5		$	2.0		$	298.5
Net Earnings		—		—		3.3			—			3.3			—			3.3
Other Comprehensive Income		—		—		—			5.1			5.1			—			5.1
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 4,151 shares	29,263	—		0.5		—			—			0.5			—			0.5
Share-Based Compensation		—		2.7		—			—			2.7			—			2.7
Dividends paid $0.21 per Common Share		—		—		(3.8		)	—			(3.8		)	—			(3.8		)
Recognition of Noncontrolling Interests		—		—		—			—			—			(0.1		)	(0.1		)
Adjustments to Beginning Retained Earnings		—		—		1.2			—			1.2			—			1.2
Balance, March 31, 2018	17,910,440	$	6.7	$	18.3	$	297.7		$	(17.2	)	$	305.5		$	1.9		$	307.4
Net Earnings		—		—		12.7			—			12.7			—			12.7
Other Comprehensive Loss		—		—		—			(18.2		)	(18.2		)	—			(18.2		)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 3,360 shares	163,273	0.1		2.6		—			—			2.7			—			2.7
Share-Based Compensation		—		1.4		—			—			1.4			—			1.4
Dividends paid $0.21 per Common Share		—		—		(3.8		)	—			(3.8		)	—			(3.8		)
Balance, June 30, 2018	18,073,713	$	6.8	$	22.3	$	306.6		$	(35.4	)	$	300.3		$	1.9		$	302.2
Net Earnings		—		—		9.7			—			9.7			—			9.7
Other Comprehensive Loss		—		—		—			(2.8		)	(2.8		)	—			(2.8		)
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 1,327 shares	48,863	—		1.9		—			—			1.9			—			1.9
Share-Based Compensation		—		1.9		—			—			1.9			—			1.9
Dividends paid $0.21 per Common Share		—		—		(3.8		)	—			(3.8		)	—			(3.8		)
Balance, September 30, 2018	18,122,576	$	6.8	$	26.1	$	312.5		$	(38.2	)	$	307.2		$	1.9		$	309.1

See accompanying Notes to the Consolidated Financial Statements.

TENNANT COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In millions, except shares and per share data)


1.	Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting. In our opinion, the Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of our financial position and results of operations.

These statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our annual report on Form 10-K for the year ended December 31, 2018. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Reclassification – We reclassified $6.6 million of payroll tax accruals from Other Current Liabilities to Employee Compensation and Benefits in the Consolidated Balance Sheet at December 31, 2018 to conform to the current year presentation. This reclassification is also reflected in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 in Note 19.

Leases – We assess whether an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We have elected the practical expedient to not separate lease and non-lease components for all assets. Operating lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. The depreciable life of lease assets and leasehold improvements are limited by the lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain leases also include options to purchase the leased asset. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Further details regarding leases are discussed in Notes 2 and 13.

New Accounting Pronouncements – Further details regarding the adoption of new accounting standards are discussed in Note 2.

We documented the summary of significant accounting policies in the Notes to the Consolidated Financial Statements of our annual report on Form 10-K for the fiscal year ended December 31, 2018. Other than the accounting policies noted above, there have been no material changes to our accounting policies since the filing of that report.


2.	Newly Adopted Accounting Pronouncements

Leases

On January 1, 2019, we adopted Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842). This ASU requires lessees to recognize lease assets and lease liabilities on the balance sheet. Under the new guidance, lessor accounting is largely unchanged.

We have elected to adopt the standard on the modified retrospective basis. We have also elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating lease related assets or liabilities for leases with a lease term less than one year. We have also elected the practical expedient to not separate lease and non-lease components for all of our leases. We did not elect the hindsight practical expedient to determine the reasonably certain term of existing leases.

The impact of adopting the new lease standard was the recognition of $44.8 million of lease assets and lease liabilities related to our operating leases. The adoption of the new lease standard had no impact to our Consolidated Statements of Earnings, Consolidated Statements of Cash Flows or Consolidated Statements of Equity.

Derivatives and Hedging

On January 1, 2019, we adopted ASU No. 2017-12, Derivatives and Hedging, and all the related amendments to Accounting Standards Codification Topic 815 which aligns hedge accounting with risk management activities and simplifies the requirements to qualify for hedge accounting. Adoption did not have a material impact on our financial statements. We continue to assess opportunities enabled by the new standard to expand our risk management strategies.

3. Revenue from Contracts with Customers

Disaggregation of Revenue

The following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels for the three and nine months ended September 30, 2019 and 2018:

Net Sales by geographic area



	Three Months Ended				Nine Months Ended
	September 30				September 30
	2019		2018		2019		2018
Americas	$	186.1	$	175.3	$	536.4	$	516.7
Europe, Middle East and Africa	69.7		74.3		228.6		250.5
Asia Pacific	24.9		23.7		77.8		71.1
Total	$	280.7	$	273.3	$	842.8	$	838.3

Net Sales are attributed to each geographic area based on the end user country and are net of intercompany sales.

Net Sales by groups of similar products and services



	Three Months Ended				Nine Months Ended
	September 30				September 30
	2019		2018		2019		2018
Equipment	$	169.3	$	178.2	$	519.2	$	542.3
Parts and Consumables	44.1		53.7		163.1		168.5
Specialty Surface Coatings	6.9		7.1		20.2		21.4
Service and Other	60.4		34.3		140.3		106.1
Total	$	280.7	$	273.3	$	842.8	$	838.3

Net Sales by sales channel



	Three Months Ended				Nine Months Ended
	September 30				September 30
	2019		2018		2019		2018
Sales Direct to Consumer	$	189.7	$	180.9	$	563.5	$	547.1
Sales to Distributors	91.0		92.4		279.3		291.2
Total	$	280.7	$	273.3	$	842.8	$	838.3

Contract Liabilities

Sales Returns

The right of return may exist explicitly or implicitly with our customers. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns using the expected value method by assessing historical sales levels and the timing and magnitude of historical sales return levels as a percent of sales and projecting this experience into the future.

Sales Incentives

Our sales contracts may contain various customer incentives, such as volume-based rebates or other promotions. We reduce the transaction price for certain customer programs and incentive offerings that represent variable consideration. Sales incentives given to our customers are recorded using the most likely amount approach for estimating the amount of consideration to which the company will be entitled. We forecast the most likely amount of the incentive to be paid at the time of sale, update this forecast quarterly, and adjust the transaction price accordingly to reflect the new amount of incentives expected to be earned by the customer. A majority of our customer incentives are settled within one year. We record our accruals for volume-based rebates and other promotions in Other Current Liabilities on our Consolidated Balance Sheets.

The change in our sales incentive accrual balance for the nine months ended September 30, 2019 and 2018 was as follows:



	Nine Months Ended
	September 30
	2019			2018
Beginning balance	$	16.7		$	13.5
Additions to sales incentive accrual	21.0			22.1
Contract payments	(24.4		)	(21.7		)
Foreign currency fluctuations	(0.1		)	(0.3		)
Ending balance	$	13.2		$	13.6

Deferred Revenue

We sell separately priced prepaid contracts to our customers where we receive payment at the inception of the contract and defer recognition of the consideration received because we have to satisfy future performance obligations. Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months. In circumstances where prepaid contracts are bundled with machines, we use an observable price to determine stand-alone selling price for separate performance obligations.

The change in the deferred revenue balance for the nine months ended September 30, 2019 and 2018 was as follows:



	Nine Months Ended
	September 30
	2019			2018
Beginning balance	$	8.5		$	7.8
Increase in deferred revenue representing our obligation to satisfy future performance obligations	8.3			11.0
Deferred revenue addition from the acquisition of Gaomei	1.4			—
Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations	(8.2		)	(10.5		)
Foreign currency fluctuations	(0.1		)	(0.1		)
Ending balance	$	9.9		$	8.2

At September 30, 2019, $6.2 million and $3.7 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets. Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:



Remaining 2019	$	4.0
2020	2.8
2021	1.7
2022	0.9
2023	0.4
Thereafter	0.1
Total	$	9.9

At December 31, 2018, $5.0 million and $3.5 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets.


4.	Management Actions

Restructuring Actions

During the first quarter of 2019, we implemented a restructuring action to further our integration efforts related to the IPC Group. The pre-tax charge of $4.3 million consisting of severance was included within Selling and Administrative Expense in the Consolidated Statements of Earnings. The charge impacted our EMEA operating segment. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.

A reconciliation of the beginning and ending liability balances is as follows:



	Severance and Related Costs
December 31, 2017 balance	$	3.4
2018 charges and utilization:
New charges	1.0
Cash payments	(2.1		)
Foreign currency adjustments	(0.1		)
December 31, 2018 balance	$	2.2
2019 charges and utilization:
New charges	4.3
Cash payments	(1.4		)
Foreign currency adjustments	(0.1		)
September 30, 2019 balance	$	5.0

Other Actions

During the second quarter of 2019, we recorded a $2.7 million write-down of a portion of a note receivable related to the divestiture of the Green Machine business to adjust the balance to net realizable value. This write-down was recorded in Selling and Administrative Expenses. In the third quarter of 2019, we collected the remaining balance of the note receivable.

During the second quarter of 2019, we made the decision to discontinue the Green Machine and Orbio product lines. In the second and third quarters of 2019, we recorded $2.4 million and $0.4 million, respectively, in Cost of Sales to reflect our estimate of inventory that will not be sold.


5.	Acquisition

On January 4, 2019, we completed the acquisition of Hefei Gaomei Cleaning Machines Co., Ltd. and Anhui Rongen Environmental Protection Technology Co., Ltd. (collectively "Gaomei"), privately held designers and manufacturers of commercial cleaning solutions based in China. The financial results for Gaomei have been included in the consolidated financial results since the date of closing.

The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed as of the date of acquisition:



ASSETS
Current Assets	$	8.5
Intangible Assets Subject to Amortization:
Trade Name	1.8
Customer Lists	13.9
Other Assets	1.3
Total Identifiable Assets Acquired	25.5
LIABILITIES
Current Liabilities	(5.3		)
Long-Term Liabilities	(4.0		)
Total Identifiable Liabilities Assumed	(9.3		)
Goodwill	11.1
Total Purchase Price	$	27.3

The fair value measurements were final at September 30, 2019, with the exception of the fair value of inventory, goodwill, intangible assets, certain current liabilities, income taxes payable, deferred income taxes, and uncertain tax positions.

The total purchase price includes the following:


•	$11.3 million was paid during the first quarter of 2019 upon close of the transaction;


•	$11.3 million which will be paid in January 2020; and

•

The remaining purchase price of $4.7 million represents the estimated fair value of contingent consideration at the acquisition date. The payment is based on a probability-weighted scenario analysis of achieving certain levels of gross profit growth over a three year period. Consideration of $0.0 million to $42.4 million will be paid in March 2021 if the gross profit growth targets are met. As of September 30, 2019, the contingent consideration had a fair value of $2.9 million.

None of the goodwill is expected to be deductible for income tax purposes. The expected lives of the acquired amortizable intangible assets range from 10 years to 15 years and are being amortized on a straight-line basis.


6.	Inventories

Inventories are valued at the lower of cost or market. Inventories at September 30, 2019 and December 31, 2018 consisted of the following:



	September 30, 2019			December 31, 2018
Inventories carried at LIFO:
Finished goods	$	54.1		$	48.6
Raw materials, production parts and work-in-process	35.4			28.6
Excess of FIFO over LIFO cost^(a)	(32.0		)	(31.2		)
Total LIFO inventories	57.5			46.0
Inventories carried at FIFO:
Finished goods	60.3			53.5
Raw materials, production parts and work-in-process	43.1			35.6
Total FIFO inventories	103.4			89.1
Total inventories	$	160.9		$	135.1


^(a)	Inventories of $57.5 million as of September 30, 2019, and $46.0 million as of December 31, 2018, were valued at LIFO. The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method.


7.	Goodwill and Intangible Assets

The changes in the carrying value of Goodwill for the nine months ended September 30, 2019 were as follows:



	Goodwill			Accumulated Impairment Losses			Total
Balance as of December 31, 2018	$	221.7		$	(39.0	)	$	182.7
Additions	11.1			—			11.1
Foreign currency fluctuations	(10.0		)	1.6			(8.4		)
Balance as of September 30, 2019	$	222.8		$	(37.4	)	$	185.4

The additions to Goodwill recorded during the first nine months of 2019 were related to our acquisition of Gaomei, as described further in Note 5.

The balances of acquired Intangible Assets, excluding Goodwill, as of September 30, 2019 and December 31, 2018, were as follows:



	Customer Lists			Trade Names			Technology			Total
Balance as of September 30, 2019
Original cost	$	149.9		$	31.0		$	17.0		$	197.9
Accumulated amortization	(44.3		)	(7.3		)	(6.8		)	(58.4		)
Carrying value	$	105.6		$	23.7		$	10.2		$	139.5
Weighted average original life (in years)	15			11			11
Balance as of December 31, 2018
Original cost	$	143.0		$	30.6		$	17.4		$	191.0
Accumulated amortization	(33.7		)	(5.3		)	(5.5		)	(44.5		)
Carrying value	$	109.3		$	25.3		$	11.9		$	146.5
Weighted average original life (in years)	15			10			10

As part of our acquisition of Gaomei, we acquired trade names and a customer list with a combined preliminary fair value of $15.7 million. Further details regarding the preliminary purchase price allocation of Gaomei are described in Note 5.

Amortization expense on Intangible Assets for the three and nine months ended September 30, 2019 was $5.1 million and $16.6 million, respectively. Amortization expense on Intangible Assets for the three and nine months ended September 30, 2018 was $5.7 million and $17.4 million, respectively.

Estimated aggregate amortization expense based on the current carrying value of amortizable Intangible Assets for each of the five succeeding years and thereafter is as follows:



Remaining 2019	$	5.4
2020	19.9
2021	18.4
2022	16.3
2023	14.9
Thereafter	64.6
Total	$	139.5


8.	Debt

Financial Covenants

The 2017 Credit Agreement contains customary representations, warranties and covenants, including, but not limited to, covenants restricting the company’s ability to incur indebtedness and liens and merge or consolidate with another entity. The 2017 Credit Agreement also contains financial covenants requiring us to maintain a net leverage ratio of consolidated net indebtedness to consolidated earnings before income, taxes, depreciation and amortization, subject to certain adjustments ("Adjusted EBITDA") of not greater than 4.00 to 1, as well as requiring us to maintain an interest coverage ratio of consolidated Adjusted EBITDA to consolidated interest expense of no less than 3.50 to 1 for the quarter ended September 30, 2019. The 2017 Credit Agreement also contains a financial covenant requiring us to maintain a senior secured net leverage ratio of consolidated senior secured net indebtedness to consolidated Adjusted EBITDA ratio of not greater than 3.50 to 1. These financial covenants may restrict our ability to pay dividends and purchase outstanding shares of our common stock. In connection with the closing of the Gaomei acquisition, we elected an acquisition holiday as provided for under the 2017 Credit Agreement, which increased the net leverage ratio from 4.00 to 1 to 4.50 to 1 and the senior secured net leverage ratio from 3.50 to 1 to 4.00 to 1 during each quarter of 2019. We were in compliance with our financial covenants at September 30, 2019.

Debt Outstanding

Debt outstanding at September 30, 2019 and December 31, 2018 consisted of the following:



	September 30, 2019			December 31, 2018
Bank Borrowings	$	—		$	3.9
Senior Unsecured Notes	300.0			300.0
Credit Facility Borrowings	44.0			53.0
Secured Borrowings	2.1			2.4
Finance Lease Liabilities	0.3			0.5
Unamortized Debt Issuance Costs	(4.0		)	(4.7		)
Total Debt	342.4			355.1
Less: Current Portion of Long-Term Debt^(a)	(20.2		)	(27.0		)
Long-Term Debt	$	322.2		$	328.1


^(a)	Current portion of long-term debt includes a $19.0 million anticipated repayment on Credit Facility Borrowings under our 2017 Credit Agreement, $1.0 million of current maturities of secured borrowings and $0.2 million of current maturities of finance lease liabilities.

As of September 30, 2019, we had outstanding borrowings under our Senior Unsecured Notes of $300.0 million. In addition, we had outstanding borrowings of $44.0 million under our revolving facility and had letters of credit and bank guarantees outstanding in the amount of $3.3 million, leaving approximately $152.7 million of unused borrowing capacity on our revolving facility. Although we are not required to make a minimum principal payment during the next 12 months, we have both the intent and the ability to pay an additional $19.0 million on our credit facility borrowings during the next year. As such, we have classified $19.0 million as current maturities of long-term debt. Commitment fees on unused lines of credit for the nine months ended September 30, 2019 were $0.4 million. The overall weighted average cost of debt is approximately 5.4% and net of a related cross-currency swap instrument is approximately 4.4%. Further details regarding the cross-currency swap instrument are discussed in Note 10.


9.	Warranty

We record a liability for warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Warranty terms on machines generally range from one to four years. However, the majority of our claims are paid out within the first six to nine months following a sale. The majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues, with immaterial amounts reserved to be paid for older equipment warranty issues.

The changes in warranty reserves for the nine months ended September 30, 2019 and 2018 were as follows:



	Nine Months Ended
	September 30
	2019			2018
Beginning balance	$	13.1		$	12.7
Additions charged to expense	9.7			10.9
Foreign currency fluctuations	(0.1		)	(0.2		)
Claims paid	(8.8		)	(9.8		)
Ending balance	$	13.9		$	13.6


10.	Derivatives

Hedge Accounting and Hedging Programs

We recognize all derivative instruments as either assets or liabilities in our Consolidated Balance Sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.

We evaluate hedge effectiveness on our hedges that are designated and qualify for hedge accounting at the inception of the hedge prospectively, as well as retrospectively, and record any ineffective portion of the hedging instruments along with the

time value of purchased contracts in the same line item of the income statement as the item being hedged on our Consolidated Statements of Operations. In prior years, ineffective portions of hedging instruments and time value of purchased contracts were recorded in Net Foreign Currency Transaction Losses on our Consolidated Statements of Earnings.

Our hedging policy establishes maximum limits for each counterparty to mitigate any concentration of risk.

Balance Sheet Hedging

Hedges of Foreign Currency Assets and Liabilities

We hedge our net recognized foreign currency denominated assets and liabilities with foreign exchange forward contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates. These contracts hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value as either assets or liabilities on the Consolidated Balance Sheets with changes in the fair value recorded to Net Foreign Currency Transaction Losses in our Consolidated Statements of Earnings. These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged. At September 30, 2019 and December 31, 2018, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $50.3 million and $63.4 million, respectively.

Cash Flow Hedging

Hedges of Forecasted Foreign Currency Transactions

In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. We may use foreign exchange option contracts or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to one year. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course of business, and accordingly, they are not speculative in nature. The notional amounts of outstanding foreign currency forward contracts designated as cash flow hedges were $2.8 million as of September 30, 2019 and none as of December 31, 2018. The notional amounts of outstanding foreign currency option contracts designated as cash flow hedges were $9.4 million and $8.4 million as of September 30, 2019 and December 31, 2018, respectively.

Foreign Currency Derivatives

We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Tennant Company and its subsidiaries. We entered into Euro to U.S. dollar foreign exchange cross-currency swaps for all of the anticipated cash flows associated with an intercompany loan from a wholly-owned European subsidiary. We enter into these foreign exchange cross-currency swaps to hedge the foreign currency denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. These cross-currency swaps are designated as cash flow hedges. The hedged cash flows as of September 30, 2019 and December 31, 2018 included €168.6 million and €174.0 million of total notional values, respectively. As of September 30, 2019, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €18.6 million. The scheduled maturity and principal payment of the loan and related swaps of €150.0 million are due in April 2022. There were no new cross-currency swaps designated as cash flow hedges as of September 30, 2019.

The fair value of derivative instruments on our Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 was as follows:



	Derivative Assets					Derivative Liabilities
	Balance Sheet Location	September 30, 2019		December 31, 2018		Balance Sheet Location	September 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Foreign currency option contracts	Other Current Assets	$	0.1	$	0.2	Other Current Liabilities	$	—	$	—
Foreign currency option contracts	Other Assets	—		—		Other Liabilities	—		—
Foreign currency forward contracts	Other Current Assets	2.7		2.3		Other Current Liabilities	—		—
Foreign currency forward contracts	Other Assets	—		—		Other Liabilities	8.5		20.7
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other Current Assets	0.7		0.2		Other Current Liabilities	0.8		—
Foreign currency forward contracts	Other Assets	$	—	$	—	Other Liabilities	$	—	$	—

As of September 30, 2019, we anticipate reclassifying approximately $2.6 million of gains from Accumulated Other Comprehensive Loss to net earnings during the next 12 months.

The following tables include the amounts in the Consolidated Statements of Earnings in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the three and nine months ended September 30, 2019 and September 30, 2018:



	Three Months Ended												Nine Months Ended
	September 30												September 30
	2019						2018						2019						2018
	Total			Amount of Gain (Loss) on Cash Flow Hedge Activity			Total			Amount of Gain (Loss) on Cash Flow Hedge Activity			Total			Amount of Gain (Loss) on Cash Flow Hedge Activity			Total			Amount of Gain (Loss) on Cash Flow Hedge Activity
Net Sales	$	280.7		$	(0.1	)	$	273.3		$	(0.1	)	$	842.8		$	(0.1	)	$	838.3		$	(0.2	)
Interest Income	0.8			0.7			0.8			0.6			2.5			2.1			2.5			1.7
Net Foreign Currency Transaction Losses	(0.6		)	7.1			(0.3		)	0.9			(0.6		)	8.1			(1.4		)	6.1

The effect of foreign currency derivative instruments designated as hedges and of foreign currency derivative instruments not designated as hedges in our Consolidated Statements of Earnings for the three and nine months ended September 30, 2019 was as follows:



	Three Months Ended				Nine Months Ended
	September 30, 2019				September 30, 2019
	Foreign Currency Option Contracts		Foreign Currency Forward Contracts		Foreign Currency Option Contracts			Foreign Currency Forward Contracts
Derivatives in cash flow hedging relationships:
Net gain (loss) recognized in Other Comprehensive (Loss) Income, net of tax^(a)	$	—	$	7.2	$	(0.2	)	$	11.3
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income	—		0.5		—			1.6
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction (Gain) Loss	—		5.4		—			6.2
Derivatives not designated as hedging instruments:
Net gain (loss) recognized in earnings^(b)	$	—	$	0.6	$	—		$	(0.2	)



	Three Months Ended					Nine Months Ended
	September 30, 2018					September 30, 2018
	Foreign Currency Option Contracts		Foreign Currency Forward Contracts			Foreign Currency Option Contracts			Foreign Currency Forward Contracts
Derivatives in cash flow hedging relationships:
Net gain recognized in Other Comprehensive (Loss) Income, net of tax^(a)	$	—	$	1.2		$	—		$	4.9
Net loss reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales	—		—			(0.1		)	—
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Interest Income	—		0.4			—			1.3
Net gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Losses	—		0.7			—			4.7
Derivatives not designated as hedging instruments:
Net (loss) gain recognized in earnings^(b)	$	—	$	(0.6	)	$	—		$	1.2


^(a)	Net change in the fair value of the effective portion classified in Other Comprehensive (Loss) Income.


^(b)	Classified in Net Foreign Currency Transaction Losses.


11.	Fair Value Measurements

Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:


•	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.


•	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Our population of assets and liabilities subject to fair value measurements at September 30, 2019 is as follows:



	Fair Value		Level 1		Level 2		Level 3
Assets:
Foreign currency forward exchange contracts	$	7.6	$	—	$	7.6	$	—
Foreign currency options contracts	0.1		—		0.1		—
Total Assets	$	7.7	$	—	$	7.7	$	—
Liabilities:
Foreign currency forward exchange contracts	$	13.5	$	—	$	13.5	$	—
Contingent consideration	2.9		—		—		2.9
Total Liabilities	$	16.4	$	—	$	13.5	$	2.9

Our population of assets and liabilities subject to fair value measurements at December 31, 2018 is as follows:



	Fair Value		Level 1		Level 2		Level 3
Assets:
Foreign currency forward exchange contracts	$	7.2	$	—	$	7.2	$	—
Foreign currency option contracts	0.2		—		0.2		—
Total Assets	$	7.4	$	—	$	7.4	$	—
Liabilities:
Foreign currency forward exchange contracts	$	25.4	$	—	$	25.4	$	—
Total Liabilities	$	25.4	$	—	$	25.4	$	—

Our foreign currency forward exchange and option contracts are valued using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount. Further details regarding our foreign currency forward exchange and option contracts are discussed in Note 10.

Contingent consideration is valued using a probability-weighted scenario analysis of projected gross profit growth rates and discounted at a risk-free rate adjusted for a credit spread. Actual gross profit growth rates may differ significantly from those used in the estimate above, which may affect future payments. Changes in future payments will be reflected in future operating results as they occur.

The carrying amounts reported in the Consolidated Balance Sheets for Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Other Current Assets, Accounts Payable and Other Current Liabilities approximate fair value due to their short-term nature.

The fair market value of our Long-Term Debt approximates cost based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities.

From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets, goodwill and other intangible assets, as part of a business acquisition. These assets are measured and recognized at amounts equal to the fair value determined as of the date of acquisition. Fair value valuations are based on the information available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent

uncertainties and management judgment required in these determinations. The fair value measurements of assets and liabilities assumed as part of a business acquisition are based on valuations involving significant unobservable inputs, or Level 3, in the fair value hierarchy.

These assets are also subject to periodic impairment testing by comparing the respective carrying value of each asset to the estimated fair value of the reporting unit or asset group in which they reside. In the event we determine these assets to be impaired, we would recognize an impairment loss equal to the amount by which the carrying value of the reporting unit, impairment asset or asset group exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving unobservable inputs, or Level 3, in the fair value hierarchy.


12.	Retirement Benefit Plans

Our defined benefit pension plans and postretirement medical plan are described in Note 15 of our annual report on Form 10-K for the year ended December 31, 2018. We have contributed $0.1 million and $0.3 million during the third quarter of 2019 and $0.3 million and $0.7 million during the first nine months of 2019 to our pension plans and postretirement medical plan, respectively. We contributed less than $0.1 million and $0.1 million during the third quarter of 2018 and $0.2 million and $0.7 million during the first nine months of 2018 to our pension plans and postretirement medical plan, respectively.

Net benefit costs for the three and nine months ended September 30, 2019 and 2018 were not material.


13.	Leases

We lease facilities, vehicles and equipment under the operating lease agreements, which include both monthly and longer-term arrangements.

Certain operating leases for vehicles contain residual value guarantee provisions, which would become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. As of September 30, 2019, of those leases that contain residual value guarantees, the aggregate residual value at lease expiration was $13.7 million, of which we have guaranteed $10.7 million. As of September 30, 2019, we have recorded a liability for the estimated end of term loss related to this residual value guarantee of $0.2 million for certain vehicles within our fleet.

The lease assets and liabilities as of September 30, 2019 are as follows:



		September 30,
Leases	Classification	2019
Assets
Operating lease assets	Operating Lease Assets	$	46.2
Finance lease assets	Property, Plant and Equipment^(a)	0.3
Total leased assets		$	46.5
Liabilities
Current:
Operating	Other Current Liabilities	$	16.5
Finance	Current Portion of Long-term Debt	0.2
Noncurrent:
Operating	Long-term Operating Lease Liabilities	29.8
Finance	Long-term Debt	0.1
Total lease liabilities		$	46.6

^(a)Finance lease assets are recorded net of accumulated amortization of $0.5 million as of September 30, 2019.

The lease cost for the three and nine months ended September 30, 2019 and 2018 was as follows:



	Three Months Ended					Nine Months Ended
	September 30					September 30
Lease Cost	2019			2018		2019			2018
Operating lease cost	$	5.3	^(a)	$	5.3	$	16.4	^(a)	$	16.0
Finance lease cost^(b)	0.1			—		0.2			—
Net lease cost	$	5.4		$	5.3	$	16.6		$	16.0


^(a)	Includes short-term lease costs of $0.8 million and $2.2 million for the three and nine months ended September 30, 2019, respectively, and variable lease costs of $0.5 million and $1.8 million for the three and nine months ended September 30, 2019, respectively.

^(b)Includes amortization of leased assets and interest on lease liabilities.

The maturity of lease liabilities at September 30, 2019 was as follows:



Maturity of Lease Liabilities	Operating Leases			Finance Leases		Total
Remaining 2019	$	5.0		$	0.1	$	5.1
2020	16.4			0.2		16.6
2021	11.4			—		11.4
2022	7.2			—		7.2
2023	4.9			—		4.9
Thereafter	5.0			—		5.0
Total lease payments	$	49.9		$	0.3	$	50.2
Less: Interest	(3.6		)	—		(3.6		)
Present value of lease liabilities	$	46.3		$	0.3	$	46.6

The minimum rentals for aggregate lease commitments as of December 31, 2018 were as follows:



2019	$	15.2
2020	9.0
2021	5.5
2022	3.6
2023	2.6
Thereafter	4.2
Total	$	40.1

The lease term and discount rate at September 30, 2019 were as follows:



	September 30,
Lease Term and Discount Rate	2019
Weighted-average remaining lease term (years):
Operating leases	3.7
Finance leases	1.6
Weighted-average discount rate:
Operating leases	3.6	%
Finance leases	2.5	%

Other information related to cash paid related to lease liabilities and lease assets obtained for the nine months ended September 30, 2019 was as follows:



	Nine Months Ended
	September 30,
Other Information	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	—
Operating cash flows from operating leases	17.0
Financing cash flows from finance leases	0.2
Lease assets obtained in exchange for new finance lease liabilities	0.1
Lease assets obtained in exchange for new operating lease liabilities	18.7


14.	Commitments and Contingencies

In the ordinary course of business, we may become liable with respect to pending and threatened litigation, tax, environmental and other matters. While the ultimate results of current claims, investigations and lawsuits involving us are unknown at this time, we do not expect that these matters will have a material adverse effect on our consolidated financial position or results of operations. Legal costs associated with such matters are expensed as incurred.


15.	Accumulated Other Comprehensive Loss

Components of Accumulated Other Comprehensive Loss, net of tax, within the Consolidated Balance Sheets, are as follows:



	September 30, 2019			December 31, 2018
Foreign currency translation adjustments	$	(45.3	)	$	(31.9	)
Pension and retiree medical benefits	(0.3		)	(0.3		)
Cash flow hedge	(1.7		)	(5.0		)
Total Accumulated Other Comprehensive Loss	$	(47.3	)	$	(37.2	)

The changes in components of Accumulated Other Comprehensive Loss, net of tax, are as follows:



	Foreign Currency Translation Adjustments			Pension and Post-Retirement Benefits			Cash Flow Hedge			Total
December 31, 2018	$	(31.9	)	$	(0.3	)	$	(5.0	)	$	(37.2	)
Other comprehensive (loss) income before reclassifications	(13.4		)	—			11.1			(2.3		)
Amounts reclassified from Accumulated Other Comprehensive Loss	—			—			(7.8		)	(7.8		)
Net current period other comprehensive (loss) income	(13.4		)	—			3.3			(10.1		)
September 30, 2019	$	(45.3	)	$	(0.3	)	$	(1.7	)	$	(47.3	)


16.	Income Taxes

We and our subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before 2016 and, with limited exceptions, state and foreign income tax examinations for taxable years before 2014.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in Income Tax Expense. In addition to the liability of $5.1 million for unrecognized tax benefits as of September 30, 2019, there was approximately $0.5 million for accrued interest and penalties. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, 2019 was $5.0 million. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be revised and reflected as an adjustment of the Income Tax Expense.

We are currently under examination by the Internal Revenue Service for the 2016 and 2017 tax years. Although the outcome of this matter cannot currently be determined, we believe adequate provision has been made for any potential unfavorable

financial statement impact. We are currently undergoing income tax examinations in various state and foreign jurisdictions covering 2014 to 2017. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.


17.	Share-Based Compensation

Our share-based compensation plans are described in Note 19 of our annual report on Form 10-K for the year ended December 31, 2018. During the three months ended September 30, 2019 and 2018, we recognized total Share-Based Compensation Expense of $3.7 million and $1.9 million, respectively. During the nine months ended September 30, 2019 and 2018, we recognized total Share-Based Compensation Expense of $8.7 million and $6.0 million, respectively. The total excess tax benefit recognized for share-based compensation arrangements during the nine months ended September 30, 2019 and 2018 was $0.7 million and $2.1 million, respectively.

During the first nine months of 2019, we issued 16,211 restricted shares. The weighted average grant date fair value of each share awarded was $63.65. Restricted share awards generally have a three years vesting period from the effective date of the grant. The total fair value of shares vested during the nine months ended September 30, 2019 and 2018 was $1.0 million and $0.9 million, respectively.


18.	Earnings Attributable to Tennant Company Per Share

The computations of Basic and Diluted Earnings per Share were as follows:



	Three Months Ended				Nine Months Ended
	September 30				September 30
	2019		2018		2019		2018
Numerator:
Net Earnings Attributable to Tennant Company	$	14.6	$	9.7	$	34.8	$	25.7
Denominator:
Basic - Weighted Average Shares Outstanding	18,134,909		17,998,917		18,086,962		17,911,880
Effect of dilutive securities:
Share-based compensation plans	353,039		440,704		315,967		432,933
Diluted - Weighted Average Shares Outstanding	18,487,948		18,439,621		18,402,929		18,344,813
Basic Earnings per Share	$	0.81	$	0.54	$	1.93	$	1.43
Diluted Earnings per Share	$	0.79	$	0.52	$	1.89	$	1.40

Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 485,853 and 139,106 shares of common stock during the three months ended September 30, 2019 and 2018, respectively. Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 687,972 and 214,605 shares of common stock during the nine months ended September 30, 2019 and 2018, respectively. These exclusions were made if the exercise prices of the options are greater than the average market price of our common stock for the period, if the number of shares we can repurchase under the treasury stock method exceeds the weighted average shares outstanding in the options or if we have a net loss, as these effects are anti-dilutive.


19.	Separate Financial Information of Guarantor Subsidiaries

The following condensed consolidated guarantor financial information is presented to comply with the requirements of Rule 3-10 of Regulation S-X.

In 2017, we issued and sold $300.0 million in aggregate principal amount of our 5.625% Senior Notes due 2025 (the "Notes"), pursuant to an Indenture, dated as of April 18, 2017, among the company, the Guarantors (as defined below), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are unconditionally and jointly and severally guaranteed by Tennant Coatings, Inc. and Tennant Sales and Service Company (collectively, the "Guarantors"), which are wholly owned subsidiaries of the company.

The Notes and the guarantees constitute senior unsecured obligations of the company and the Guarantors, respectively. The Notes and the guarantees, respectively, are: (a) equal in right of payment with all of the company’s and the Guarantors’ senior debt, without giving effect to collateral arrangements; (b) senior in right of payment to all of the company’s and the Guarantors’ future subordinated debt, if any; (c) effectively subordinated in right of payment to all of the company’s and the Guarantors’ debt and obligations that are secured, including borrowings under the company’s senior secured credit facilities for so long as the senior secured credit facilities are secured, to the extent of the value of the assets securing such liens; and (d) structurally

subordinated in right of payment to all liabilities (including trade payables) of the company’s and the Guarantors’ subsidiaries that do not guarantee the Notes.

The following condensed consolidated financial information presents the Condensed Consolidated Statements of Earnings and the Condensed Consolidated Statements of Comprehensive Income for each of the three and nine months ended September 30, 2019 and September 30, 2018, the related Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018, and the related Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018, of Tennant Company ("Parent"), the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis and elimination entries necessary to consolidate the Parent with the Guarantor and Non-Guarantor Subsidiaries. The following condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the company and notes thereto of which this note is an integral part.



Condensed Consolidated Statement of Earnings
For the three months ended September 30, 2019
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	136.0		$	172.6		$	127.3		$	(155.2	)	$	280.7
Cost of Sales	88.0			147.2			86.6			(155.1		)	166.7
Gross Profit	48.0			25.4			40.7			(0.1		)	114.0

Operating Expense:
Research and Development Expense	6.6			0.2			1.4			—			8.2
Selling and Administrative Expense	30.8			18.3			35.2			—			84.3
Total Operating Expense	37.4			18.5			36.6			—			92.5
Profit from Operations	10.6			6.9			4.1			(0.1		)	21.5

Other Income (Expense):
Equity in Earnings of Affiliates	7.2			0.2			0.5			(7.9		)	—
Interest (Expense) Income, Net	(4.4		)	—			—			—			(4.4		)
Intercompany Interest Income (Expense)	3.6			(1.5		)	(2.1		)	—			—
Net Foreign Currency Transaction Losses	(0.2		)	—			(0.4		)	—			(0.6		)
Other (Expense) Income, Net	(0.2		)	(0.3		)	0.6			—			0.1
Total Other Expense, Net	6.0			(1.6		)	(1.4		)	(7.9		)	(4.9		)

Profit Before Income Taxes	16.6			5.3			2.7			(8.0		)	16.6
Income Tax Expense (Benefit)	2.0			0.8			(0.1		)	(0.7		)	2.0
Net Earnings Including Noncontrolling Interest	14.6			4.5			2.8			(7.3		)	14.6
Net Earnings Attributable to Tennant Company	$	14.6		$	4.5		$	2.8		$	(7.3	)	$	14.6



Condensed Consolidated Statement of Earnings
For the nine months ended September 30, 2019
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	393.5		$	495.9		$	408.4		$	(455.0	)	$	842.8
Cost of Sales	256.9			418.2			276.4			(451.7		)	499.8
Gross Profit	136.6			77.7			132.0			(3.3		)	343.0

Operating Expense:
Research and Development Expense	19.0			0.7			4.1			—			23.8
Selling and Administrative Expense	85.7			56.9			124.4			—			267.0
Total Operating Expense	104.7			57.6			128.5			—			290.8
Profit from Operations	31.9			20.1			3.5			(3.3		)	52.2

Other Income (Expense):
Equity in Earnings of Affiliates	11.9			1.6			2.8			(16.3		)	—
Interest (Expense) Income, Net	(13.2		)	—			—			—			(13.2		)
Intercompany Interest Income (Expense)	10.5			(4.3		)	(6.2		)	—			—
Net Foreign Currency Transaction Losses	—			—			(0.6		)	—			(0.6		)
Other (Expense) Income, Net	(1.3		)	(1.0		)	3.8			(0.1		)	1.4
Total Other Expense, Net	7.9			(3.7		)	(0.2		)	(16.4		)	(12.4		)

Profit Before Income Taxes	39.8			16.4			3.3			(19.7		)	39.8
Income Tax Expense (Benefit)	5.0			3.8			(0.3		)	(3.5		)	5.0
Net Earnings Including Noncontrolling Interest	34.8			12.6			3.6			(16.2		)	34.8
Net Earnings Attributable to Tennant Company	$	34.8		$	12.6		$	3.6		$	(16.2	)	$	34.8



Condensed Consolidated Statement of Earnings
For the three months ended September 30, 2018
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	126.1		$	160.2		$	131.4		$	(144.4	)	$	273.3
Cost of Sales	86.8			135.0			89.2			(144.3		)	166.7
Gross Profit	39.3			25.2			42.2			(0.1		)	106.6

Operating Expense:
Research and Development Expense	6.1			0.3			1.1			—			7.5
Selling and Administrative Expense	26.7			18.1			38.1			0.8			83.7
Total Operating Expense	32.8			18.4			39.2			0.8			91.2
Profit from Operations	6.5			6.8			3.0			(0.9		)	15.4

Other Income (Expense):
Equity in Earnings of Affiliates	5.3			0.2			0.2			(5.7		)	—
Interest (Expense) Income, Net	(5.3		)	—			0.1			—			(5.2		)
Intercompany Interest Income (Expense)	3.6			(1.4		)	(2.2		)	—			—
Net Foreign Currency Transaction Losses	(0.1		)	—			(0.2		)	—			(0.3		)
Other (Expense) Income, Net	(0.1		)	(0.5		)	(0.2		)	0.8			—
Total Other Income (Expense), Net	3.4			(1.7		)	(2.3		)	(4.9		)	(5.5		)

Profit Before Income Taxes	9.9			5.1			0.7			(5.8		)	9.9
Income Tax Expense (Benefit)	0.2			1.2			(0.9		)	(0.3		)	0.2
Net Earnings Including Noncontrolling Interest	9.7			3.9			1.6			(5.5		)	9.7
Net Earnings Attributable to Tennant Company	$	9.7		$	3.9		$	1.6		$	(5.5	)	$	9.7



Condensed Consolidated Statement of Earnings
For the nine months ended September 30, 2018
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Sales	$	366.1		$	472.5		$	422.9		$	(423.2	)	$	838.3
Cost of Sales	249.1			395.3			282.8			(421.8		)	505.4
Gross Profit	117.0			77.2			140.1			(1.4		)	332.9

Operating Expense:
Research and Development Expense	18.6			0.8			4.0			—			23.4
Selling and Administrative Expense	84.5			57.2			122.2			0.8			264.7
Total Operating Expense	103.1			58.0			126.2			0.8			288.1
Profit from Operations	13.9			19.2			13.9			(2.2		)	44.8

Other Income (Expense):
Equity in Earnings of Affiliates	19.7			1.3			4.2			(25.2		)	—
Interest (Expense) Income, Net	(15.7		)	—			0.5			—			(15.2		)
Intercompany Interest Income (Expense)	10.9			(4.3		)	(6.6		)	—			—
Net Foreign Currency Transaction Losses	(0.4		)	—			(1.0		)	—			(1.4		)
Other (Expense) Income, Net	(1.0		)	(1.6		)	1.1			0.7			(0.8		)
Total Other Income (Expense), Net	13.5			(4.6		)	(1.8		)	(24.5		)	(17.4		)

Profit Before Income Taxes	27.4			14.6			12.1			(26.7		)	27.4
Income Tax Expense	1.6			3.5			0.7			(4.2		)	1.6
Net Earnings Including Noncontrolling Interest	25.8			11.1			11.4			(22.5		)	25.8
Net Earnings Attributable to Noncontrolling Interest	0.1			—			0.1			(0.1		)	0.1
Net Earnings Attributable to Tennant Company	$	25.7		$	11.1		$	11.3		$	(22.4	)	$	25.7



Condensed Consolidated Statement of Comprehensive Income (Loss)
For the three months ended September 30, 2019
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Earnings Including Noncontrolling Interest	$	14.6		$	4.5		$	2.8		$	(7.3	)	$	14.6
Other Comprehensive Loss:
Foreign currency translation adjustments	(12.6		)	(9.9		)	(13.9		)	23.8			(12.6		)
Pension and retiree medical benefits	—			—			—			—			—
Cash flow hedge	1.7			—			—			—			1.7
Income Taxes:
Foreign currency translation adjustments	0.1			—			(1.1		)	1.1			0.1
Pension and retiree medical benefits	—			—			—			—			—
Cash flow hedge	(0.4		)	—			—			—			(0.4		)
Total Other Comprehensive Loss, net of tax	(11.2		)	(9.9		)	(15.0		)	24.9			(11.2		)

Total Comprehensive Income (Loss) Including Noncontrolling Interest	3.4			(5.4		)	(12.2		)	17.6			3.4
Comprehensive Income (Loss) Attributable to Tennant Company	$	3.4		$	(5.4	)	$	(12.2	)	$	17.6		$	3.4



Condensed Consolidated Statement of Comprehensive Income (Loss)
For the nine months ended September 30, 2019
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Earnings Including Noncontrolling Interest	$	34.8		$	12.6		$	3.6		$	(16.2	)	$	34.8
Other Comprehensive Loss:
Foreign currency translation adjustments	(13.5		)	(10.1		)	(14.6		)	24.7			(13.5		)
Pension and retiree medical benefits	—			—			—			—			—
Cash flow hedge	4.3			—			—			—			4.3
Income Taxes:
Foreign currency translation adjustments	0.1			—			(0.1		)	0.1			0.1
Pension and retiree medical benefits	—			—			—			—			—
Cash flow hedge	(1.0		)	—			—			—			(1.0		)
Total Other Comprehensive Loss, net of tax	(10.1		)	(10.1		)	(14.7		)	24.8			(10.1		)

Total Comprehensive Income (Loss) Including Noncontrolling Interest	24.7			2.5			(11.1		)	8.6			24.7
Comprehensive Income (Loss) Attributable to Tennant Company	$	24.7		$	2.5		$	(11.1	)	$	8.6		$	24.7



Condensed Consolidated Statement of Comprehensive Income (Loss)
For the three months ended September 30, 2018
(in millions)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Earnings Including Noncontrolling Interest	$	9.7		$	3.9	$	1.6		$	(5.5	)	$	9.7
Other Comprehensive Loss:
Foreign currency translation adjustments	(3.1		)	0.2		(3.7		)	3.5			(3.1		)
Pension and retiree medical benefits	—			—		—			—			—
Cash flow hedge	—			—		—			—			—
Income Taxes:
Foreign currency translation adjustments	0.3			—		0.3			(0.3		)	0.3
Pension and retiree medical benefits	—			—		—			—			—
Cash flow hedge	—			—		—			—			—
Total Other Comprehensive (Loss) Income, net of tax	(2.8		)	0.2		(3.4		)	3.2			(2.8		)

Total Comprehensive Income (Loss) Including Noncontrolling Interest	6.9			4.1		(1.8		)	(2.3		)	6.9
Comprehensive Income (Loss) Attributable to Tennant Company	$	6.9		$	4.1	$	(1.8	)	$	(2.3	)	$	6.9



Condensed Consolidated Statement of Comprehensive Income (Loss)
For the nine months ended September 30, 2018
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
Net Earnings Including Noncontrolling Interest	$	25.8		$	11.1		$	11.4		$	(22.5	)	$	25.8
Other Comprehensive Loss:
Foreign currency translation adjustments	(14.2		)	(0.3		)	(20.1		)	20.4			(14.2		)
Pension and retiree medical benefits	0.1			—			—			—			0.1
Cash flow hedge	(1.4		)	—			—			—			(1.4		)
Income Taxes:
Foreign currency translation adjustments	0.6			—			0.5			(0.5		)	0.6
Pension and retiree medical benefits	(0.2		)	—			—			—			(0.2		)
Cash flow hedge	(0.8		)	—			—			—			(0.8		)
Total Other Comprehensive Loss, net of tax	(15.9		)	(0.3		)	(19.6		)	19.9			(15.9		)

Total Comprehensive Income (Loss) Including Noncontrolling Interest	9.9			10.8			(8.2		)	(2.6		)	9.9
Comprehensive Income Attributable to Noncontrolling Interest	0.1			—			0.1			(0.1		)	0.1
Comprehensive Income (Loss) Attributable to Tennant Company	$	9.8		$	10.8		$	(8.3	)	$	(2.5	)	$	9.8



Condensed Consolidated Balance Sheet
As of September 30, 2019
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
ASSETS
Current Assets:
Cash, Cash Equivalents, and Restricted Cash	$	30.2		$	1.3		$	40.2		$	—		$	71.7
Net Receivables	1.0			104.7			107.0			—			212.7
Intercompany Receivables	24.2			124.1			—			(148.3		)	—
Inventories	44.1			19.5			110.8			(13.5		)	160.9
Prepaid and Other Current Assets	19.8			1.0			12.7			0.7			34.2
Total Current Assets	119.3			250.6			270.7			(161.1		)	479.5
Property, Plant and Equipment	250.3			12.9			148.4			—			411.6
Accumulated Depreciation	(170.7		)	(7.2		)	(66.2		)	—			(244.1		)
Property, Plant and Equipment, Net	79.6			5.7			82.2			—			167.5
Operating Lease Assets	5.4			9.9			30.9			—			46.2
Investment in Affiliates	402.9			13.5			38.4			(454.8		)	—
Intercompany Loans	293.5			—			—			(293.5		)	—
Goodwill	12.9			1.7			170.8			—			185.4
Intangible Assets, Net	3.4			2.5			133.6			—			139.5
Other Assets	5.7			4.2			17.1			—			27.0
Total Assets	$	922.7		$	288.1		$	743.7		$	(909.4	)	$	1,045.1
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Current Portion of Long-Term Debt	$	19.0		$	—		$	1.2		$	—		$	20.2
Accounts Payable	42.8			6.2			44.9			—			93.9
Intercompany Payables	123.3			—			25.0			(148.3		)	—
Employee Compensation and Benefits	15.4			13.1			24.4			—			52.9
Other Current Liabilities	30.4			20.5			51.3			0.7			102.9
Total Current Liabilities	230.9			39.8			146.8			(147.6		)	269.9
Long-Term Liabilities:
Long-Term Debt	321.0			—			1.2			—			322.2
Intercompany Loans	3.8			128.0			161.7			(293.5		)	—
Long-Term Operating Lease Liabilities	4.6			4.8			20.4			—			29.8
Employee-Related Benefits	10.7			1.4			7.4			—			19.5
Deferred Income Taxes	—			—			42.4			—			42.4
Other Liabilities	11.9			2.9			6.7			—			21.5
Total Long-Term Liabilities	352.0			137.1			239.8			(293.5		)	435.4
Total Liabilities	582.9			176.9			386.6			(441.1		)	705.3
Equity:
Common Stock	6.8			—			11.1			(11.1		)	6.8
Additional Paid-In Capital	39.7			77.5			417.4			(494.9		)	39.7
Retained Earnings	339.1			35.3			1.0			(36.3		)	339.1
Accumulated Other Comprehensive Loss	(47.3		)	(1.6		)	(73.9		)	75.5			(47.3		)
Total Tennant Company Shareholders' Equity	338.3			111.2			355.6			(466.8		)	338.3
Noncontrolling Interest	1.5			—			1.5			(1.5		)	1.5
Total Equity	339.8			111.2			357.1			(468.3		)	339.8
Total Liabilities and Total Equity	$	922.7		$	288.1		$	743.7		$	(909.4	)	$	1,045.1



Condensed Consolidated Balance Sheet
As of December 31, 2018
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
ASSETS
Current Assets:
Cash, Cash Equivalents, and Restricted Cash	$	24.8		$	1.6		$	59.7		$	—		$	86.1
Net Receivables	0.9			94.8			120.5			—			216.2
Intercompany Receivables	30.0			148.9			—			(178.9		)	—
Inventories	37.1			13.4			94.7			(10.1		)	135.1
Prepaid and Other Current Assets	17.5			1.2			13.0			(0.5		)	31.2
Total Current Assets	110.3			259.9			287.9			(189.5		)	468.6
Property, Plant and Equipment	229.8			12.7			144.1			—			386.6
Accumulated Depreciation	(159.4		)	(6.9		)	(56.9		)	—			(223.2		)
Property, Plant and Equipment, Net	70.4			5.8			87.2			—			163.4
Operating Lease Assets	—			—			—			—			—
Investment in Affiliates	421.0			12.1			20.8			(453.9		)	—
Intercompany Loans	301.6			—			3.2			(304.8		)	—
Goodwill	12.9			1.7			168.1			—			182.7
Intangible Assets, Net	4.0			2.7			139.8			—			146.5
Other Assets	11.0			3.1			17.2			—			31.3
Total Assets	$	931.2		$	285.3		$	724.2		$	(948.2	)	$	992.5
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Current Portion of Long-Term Debt	$	21.8		$	—		$	5.2		$	—		$	27.0
Accounts Payable	41.0			5.0			52.4			—			98.4
Intercompany Payables	149.5			—			29.5			(179.0		)	—
Employee Compensation and Benefits	14.4			17.2			24.5			—			56.1
Other Current Liabilities	22.8			17.6			27.5			(0.5		)	67.4
Total Current Liabilities	249.5			39.8			139.1			(179.5		)	248.9
Long-Term Liabilities:
Long-Term Debt	326.5			—			1.6			—			328.1
Intercompany Loans	3.3			128.1			173.5			(304.9		)	—
Long-Term Operating Lease Liabilities	—			—			—			—			—
Employee-Related Benefits	11.0			2.0			8.1			—			21.1
Deferred Income Taxes	—			—			46.0			—			46.0
Other Liabilities	24.6			2.9			4.6			—			32.1
Total Long-Term Liabilities	365.4			133.0			233.8			(304.9		)	427.3
Total Liabilities	614.9			172.8			372.9			(484.4		)	676.2
Equity:
Common Stock	6.8			—			11.1			(11.1		)	6.8
Additional Paid-In Capital	28.5			77.5			399.5			(477.0		)	28.5
Retained Earnings	316.3			36.6			(2.5		)	(34.1		)	316.3
Accumulated Other Comprehensive Loss	(37.2		)	(1.6		)	(58.7		)	60.3			(37.2		)
Total Tennant Company Shareholders' Equity	314.4			112.5			349.4			(461.9		)	314.4
Noncontrolling Interest	1.9			—			1.9			(1.9		)	1.9
Total Equity	316.3			112.5			351.3			(463.8		)	316.3
Total Liabilities and Total Equity	$	931.2		$	285.3		$	724.2		$	(948.2	)	$	992.5



Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2019
(in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
OPERATING ACTIVITIES
Net Cash Provided by (Used in) Operating Activities	$	43.2		$	(0.1	)	$	3.1		$	—		$	46.2
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment	(20.5		)	(0.2		)	(7.6		)	—			(28.3		)
Proceeds from Disposals of Property, Plant, and Equipment	0.1			—			—			—			0.1
Proceeds from Principal Payments Received on Long-Term Note Receivable	—			—			0.1			—			0.1
Acquisition of Business, Net of Cash Acquired	—			—			(8.9		)	—			(8.9		)
Purchase of Intangible Assets	—			—			(0.5		)	—			(0.5		)
Loan Payments from Parent	—			—			(0.6		)	0.6			—
Net Cash Used in Investing Activities	(20.4		)	(0.2		)	(17.5		)	0.6			(37.5		)
FINANCING ACTIVITIES
Proceeds from Credit Facility Borrowings	25.0			—			—			—			25.0
Loan Payments to Subsidiaries	0.6			—			—			(0.6		)	—
Repayments of Debt	(33.8		)	—			(4.1		)	—			(37.9		)
Change in Finance Lease Obligations	—			—			(0.2		)	—			(0.2		)
Proceeds from Issuances of Common Stock	2.8			—			—			—			2.8
Purchase of Noncontrolling Owner Interest	—			—			(0.5		)	—			(0.5		)
Dividends Paid	(12.0		)	—			—			—			(12.0		)
Net Cash Used in Financing Activities	(17.4		)	—			(4.8		)	(0.6		)	(22.8		)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	—			—			(0.3		)	—			(0.3		)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	5.4			(0.3		)	(19.5		)	—			(14.4		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	24.8			1.6			59.7			—			86.1
Cash, Cash Equivalents and Restricted Cash at End of Period	$	30.2		$	1.3		$	40.2		$	—		$	71.7



Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2018
(in millions)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Total Tennant Company
OPERATING ACTIVITIES
Net Cash Provided by (Used in) Operating Activities	$	43.7		$	0.2	$	(0.3	)	$	—		$	43.6
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment	(4.5		)	—		(8.2		)	—			(12.7		)
Proceeds from Disposal of Property, Plant and Equipment	—			—		0.1			—			0.1
Proceeds from Principal Payments Received on Long-Term Note Receivable	—			—		0.8			—			0.8
Proceeds from Sale of Business	—			—		4.0			—			4.0
Purchase of Intangible Asset	(2.5		)	—		(0.1		)	—			(2.6		)
Change in Investments in Subsidiaries	(1.8		)	—		—			1.8			—
Loan Payments from Subsidiaries	1.2			—		—			(1.2		)	—
Loan Payments from Parent	—			—		1.0			(1.0		)	—
Net Cash Used in Investing Activities	(7.6		)	—		(2.4		)	(0.4		)	(10.4		)
FINANCING ACTIVITIES
Loan Payments to Subsidiaries	(1.0		)	—		—			1.0			—
Loan Payments to Parent	—			—		(1.2		)	1.2			—
Change in Subsidiary Equity	—			—		1.8			(1.8		)	—
Repayment of Debt	(30.0		)	—		(0.2		)	—			(30.2		)
Proceeds from Issuance of Common Stock	5.7			—		—			—			5.7
Dividends Paid	(11.3		)	—		—			—			(11.3		)
Net Cash (Used in) Provided by Financing Activities	(36.6		)	—		0.4			0.4			(35.8		)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	0.1			—		(2.4		)	—			(2.3		)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	(0.4		)	0.2		(4.7		)	—			(4.9		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	18.5			0.5		40.0			—			59.0
Cash, Cash Equivalents and Restricted Cash at End of Period	$	18.1		$	0.7	$	35.3		$	—		$	54.1


Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Tennant Company is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, reduce environmental impact and help create a cleaner, safer, healthier world. Tennant is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and outdoor cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings and asset management solutions. Tennant products are used in many types of environments, including retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance, as well as businesses that perform facilities maintenance themselves. The company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.

Historical Results

The following table compares the historical results of operations for the three and nine months ended September 30, 2019 and 2018, respectively, and as a percentage of Net Sales (in millions, except per share data and percentages):



	Three Months Ended										Nine Months Ended
	September 30										September 30
	2019			%		2018			%		2019			%		2018			%
Net Sales	$	280.7		100.0		$	273.3		100.0		$	842.8		100.0		$	838.3		100.0
Cost of Sales	166.7			59.4		166.7			61.0		499.8			59.3		505.4			60.3
Gross Profit	114.0			40.6		106.6			39.0		343.0			40.7		332.9			39.7
Operating Expense:
Research and Development Expense	8.2			2.9		7.5			2.8		23.8			2.8		23.4			2.8
Selling and Administrative Expense	84.3			30.0		83.7			30.6		267.0			31.7		264.7			31.6
Total Operating Expense	92.5			32.9		91.2			33.4		290.8			34.5		288.1			34.4
Profit from Operations	21.5			7.7		15.4			5.6		52.2			6.2		44.8			5.3
Other Income (Expense):
Interest Income	0.8			0.3		0.8			0.3		2.5			0.3		2.5			0.3
Interest Expense	(5.2		)	(1.9	)	(6.0		)	(2.2	)	(15.7		)	(1.9	)	(17.7		)	(2.1	)
Net Foreign Currency Transaction Loss	(0.6		)	(0.2	)	(0.3		)	(0.1	)	(0.6		)	(0.1	)	(1.4		)	(0.2	)
Other Income (Expense), Net	0.1			—		—			—		1.4			0.2		(0.8		)	(0.1	)
Total Other Expense, Net	(4.9		)	(1.8	)	(5.5		)	(2.0	)	(12.4		)	(1.5	)	(17.4		)	(2.1	)
Profit Before Income Taxes	16.6			5.9		9.9			3.6		39.8			4.7		27.4			3.3
Income Tax Expense	2.0			0.7		0.2			0.1		5.0			0.6		1.6			0.2
Net Earnings Including Noncontrolling Interest	14.6			5.2		9.7			3.5		34.8			4.1		25.8			3.1
Net Earnings Attributable to Tennant Company	$	14.6		5.2		$	9.7		3.5		$	34.8		4.1		$	25.7		3.1
Net Earnings Attributable to Tennant Company per Share - Diluted	$	0.79				$	0.52				$	1.89				$	1.40

Net Sales

Consolidated Net Sales for the third quarter of 2019 totaled $280.7 million, a 2.7% increase as compared to consolidated Net Sales of $273.3 million in the third quarter of 2018. Consolidated Net Sales for the first nine months of 2019 totaled $842.8 million, a 0.5% increase as compared to consolidated Net Sales of $838.3 million for the first nine months of 2018.

The components of the consolidated Net Sales change for the three and nine months ended September 30, 2019 as compared to the same period in 2018 were as follows:



	2019 v. 2018
	Three Months Ended	Nine Months Ended
	September 30	September 30
Organic Net Sales	2.8%	2.0%
Foreign Currency	(1.5%)	(2.6%)
Acquisitions and Divestitures	1.4%	1.1%
Total Net Sales	2.7%	0.5%

The 2.7% increase in consolidated Net Sales in the third quarter of 2019 as compared to the same period in 2018 was driven by:

•

An organic sales increase of approximately 2.8%, which excludes the effects of foreign currency exchange and acquisitions and divestitures. The organic sales growth was primarily due to increases in the Americas region, particularly in the strategic account channel, in addition to strength in service, parts and consumables sales in North America and growth in industrial sales in Mexico and broad-based growth in South America. The organic sales growth was partially offset by sales declines in the EMEA region due to general market weakness and challenging comparable sales performance in the United Kingdom and Central Europe and Middle Eastern markets as well as declines in the APAC region due to broad-based distribution softness in China.


•	An increase in sales of 1.4% due to our acquisition of Gaomei.


•	An unfavorable impact from foreign currency exchange of approximately 1.5%.

The 0.5% increase in consolidated Net Sales in the first nine months of 2019 as compared to the same period in 2018 was driven by:

•

An organic sales increase of approximately 2.0%, which excludes the effects of foreign currency exchange and acquisitions and divestitures. The organic sales increase was primarily due to increases in the Americas business from strong growth in our strategic account and direct sales channels in North America and strength in Latin America from growth in Mexico. The organic sales increase was partially offset by a decrease in our EMEA region from general market weakness across the entire region and from higher comparable sales growth in the first nine months of 2018, as well as a decline in China due to broad-based distribution softness.


•	An increase in sales of 1.1% due to our acquisition of Gaomei.


•	An unfavorable impact from foreign currency exchange of approximately 2.6%.

The following table sets forth the Net Sales by geographic area for the three and nine months ended September 30, 2019 and 2018 and the percentage change from the prior year (in millions, except percentages):



	Three Months Ended					Nine Months Ended
	September 30					September 30
	2019		2018		%	2019		2018		%
Americas	$	186.1	$	175.3	6.2	$	536.4	$	516.7	3.8
Europe, Middle East and Africa	69.7		74.3		(6.2)	228.6		250.5		(8.7)
Asia Pacific	24.9		23.7		5.1	77.8		71.1		9.4
Total	$	280.7	$	273.3	2.7	$	842.8	$	838.3	0.5

Americas

Net Sales in the Americas were $186.1 million for the third quarter of 2019, an increase of 6.2% from the third quarter of 2018. An unfavorable direct impact of foreign currency exchange within the Americas impacted Net Sales by approximately 0.3% in the third quarter of 2019. The divestiture of our Waterstar business in the second half of 2018 had an unfavorable impact of 0.2%. As a result, organic sales growth in the Americas favorably impacted Net Sales by approximately 6.7% due to higher strategic account channel sales from strong demand for our autonomous cleaning machines and higher direct sales channel sales from strength in our industrial machines, as well as strength in service, parts and consumables sales in North America.

Growth in industrial sales in Mexico and broad-based growth in South America from strong demand for industrial equipment also contributed to the overall growth in the Americas region.

Net Sales in the Americas were $536.4 million for the first nine months of 2019, an increase of 3.8% from the first nine months of 2018. An unfavorable direct impact of foreign currency exchange within the Americas impacted Net Sales by approximately 0.9% in the first nine months of 2019. The divestiture of our Waterstar business in the second half of 2018 had an unfavorable impact of 0.3%. As a result, organic sales growth in the Americas favorably impacted Net Sales by approximately 5.0% due to strong growth in our strategic account channel in North America from high demand for our autonomous cleaning machines, strength in our direct sales channel in North America, as well as growth in Latin America from broad-based strength across the region.

Europe, Middle East and Africa

EMEA Net Sales were $69.7 million for the third quarter of 2019, a decrease of 6.2% from the third quarter of 2018. An unfavorable impact of foreign currency exchange within EMEA impacted Net Sales by approximately 3.4% in the third quarter of 2019. Organic sales declines in EMEA unfavorably impacted Net Sales by approximately 2.8% largely due to general market weakness, with a particularly challenging comparable sales performance in the United Kingdom and the Central Europe and Middle Eastern markets.

EMEA Net Sales were $228.6 million for the first nine months of 2019, a decrease of 8.7% from the first nine months of 2018. An unfavorable impact of foreign currency exchange within EMEA impacted Net Sales by approximately 5.1% in the nine months of 2019. Organic sales declines in EMEA unfavorably impacted Net Sales by approximately 3.6% largely due to sales declines in France, the United Kingdom, and the Central Europe and Middle Eastern markets due to a challenging comparable sales performance in the strategic account and distribution channels from the first nine months of 2018 and a general market weakness in the region.

Asia Pacific

APAC Net Sales were $24.9 million for the third quarter of 2019, an increase of 5.1% from the third quarter of 2018. The acquisition of Gaomei favorably impacted Net Sales by 17.2%. Foreign currency exchange within APAC unfavorably impacted Net Sales by approximately 2.7% in the third quarter of 2019. As a result, an organic sales decline in APAC unfavorably impacted Net Sales by approximately 9.4% primarily as a result of declines in China due to a challenging comparable sales performance and broad-based distribution softness.

APAC Net Sales were $77.8 million for the first nine months of 2019, an increase of 9.4% from the first nine months of 2018. The acquisition of Gaomei favorably impacted Net Sales by 14.6%. Foreign currency exchange within APAC unfavorably impacted Net Sales by approximately 4.4% in the first nine months of 2019. As a result, an organic sales decline in APAC unfavorably impacted Net Sales by approximately 0.8% primarily due to broad-based distributor declines in China, slightly offset by growth in Japan and Korea.

Gross Profit

Gross Profit margin of 40.6% was 160 basis points higher in the third quarter of 2019 compared to the third quarter of 2018. The increase was primarily driven by pricing actions implemented during the quarter, favorable freight costs, favorable product mix, and cost-reduction initiatives in the quarter. The favorable items were partially offset by higher material and labor costs as well as the negative impacts from higher tariffs.

Gross Profit margin of 40.7% was 100 basis points higher in the first nine months of 2019 compared to the first nine months of 2018. The increase was primarily driven by pricing actions implemented during the first nine months of 2019 and a favorable product mix. The favorable items were partially offset by higher material costs, including tariffs, as well as an unfavorable impact from the discontinuation of the Green Machine and Orbio product lines.

Operating Expense

Research & Development Expense

Research and Development ("R&D") Expense was $8.2 million, or 2.9% as a percentage of Net Sales, for the third quarter of 2019, essentially flat as a percentage of Net Sales compared to the third quarter of 2018. R&D Expense was $23.8 million, or 2.8% as a percentage of Net Sales, for the first nine months of 2019, flat compared to the first nine months of 2018.

We continue to invest in developing innovative products and technologies at levels necessary to propel our technology and innovation leadership position.

Selling & Administrative Expense

Selling and Administrative Expense ("S&A Expense") was $84.3 million, an increase of $0.6 million compared to the third quarter of 2018. As a percentage of Net Sales, S&A Expense for the third quarter of 2019 decreased 60 basis points to 30.0%

from 30.6% in the third quarter of 2018. S&A Expense in the third quarter of 2019 included $0.6 million of acquisition and integration costs. S&A Expense in the third quarter of 2019 was partially offset by a favorable $3.8 million acquisition contingent consideration adjustment related to the Gaomei acquisition. The third quarter of 2018 included $1.5 million of acquisition and integration costs, $0.3 million in non-operational professional service fees and a $1.0 million gain on the sale of business. Excluding the impact of these items, S&A Expense as a percentage of Net Sales was 90 basis points higher than the third quarter of 2018, as a result of increased compensation and benefits cost partially offset by disciplined spending control in other areas.

S&A Expense was $267.0 million, an increase of $2.3 million compared to the first nine months of 2018. As a percentage of Net Sales, S&A Expense for the first nine months of 2019 increased 10 basis points to 31.7% from 31.6% in the first nine months of 2018. S&A Expense for the first nine months of 2019 included a $4.3 million restructuring charge, a $2.7 million note receivable write-down related to the divestiture of the Green Machine business and $2.1 million of integration costs and non-operational professional fees costs, partially offset by a favorable $1.8 million acquisition contingent consideration adjustment related to the Gaomei acquisition. The first nine months of 2018 included $5.4 million of acquisition and integration costs and $1.8 million in non-operational professional services fees, partially offset by a $1.0 million gain on the sale of business. Excluding the impact of these items, S&A Expense as a percentage of Net Sales remained flat compared to the first nine months of 2018, as a result of our continued balance of disciplined spending control.

Total Other Expense, Net

Interest Income

Interest Income was $0.8 million in the third quarter of 2019 and 2018. For the first nine months of 2019 and 2018, Interest Income was $2.5 million.

Interest Expense

Interest Expense was $5.2 million in the third quarter of 2019 compared to Interest Expense of $6.0 million in the third quarter of 2018. For the first nine months of 2019, Interest Expense was $15.7 million compared to Interest Expense of $17.7 million in the first nine months of 2018. The lower Interest Expense in the third quarter and first nine months of 2019 compared to the same periods in 2018 was primarily due to carrying a lower level of debt on our Consolidated Balance Sheets in 2019 compared to the same periods in 2018.

Net Foreign Currency Transaction Losses

Net Foreign Currency Transaction Losses in the third quarter of 2019 were $0.6 million compared to Net Foreign Currency Transaction Losses of $0.3 million in the third quarter of 2018. For the first nine months of 2019, Net Foreign Currency Transaction Losses were $0.6 million compared to Net Foreign Currency Transaction Losses of $1.4 million in the first nine months of 2018. The change in the impact from foreign currency transactions in the first nine months of 2019 was primarily due to the continued strengthening of the U.S. dollar during the first nine months of 2019, partially offset by strengthening of the Canadian currency compared to the weakening of this currency in the same period of last year.

Other Income (Expense), Net

Other Income (Expense), Net was $0.1 million and $1.4 million of income in the third quarter and first nine months of 2019, respectively, an increase of $0.1 million and $2.2 million compared to the same periods in 2018, respectively. The increase is primarily due to a $1.8 million acquisition-related indemnification settlement that occurred in the second quarter of 2019.

Income Taxes

The effective tax rate for the third quarter of 2019 was 12.2%, as compared to the third quarter of 2018 of 1.6%. The tax expense for the third quarter of 2019 included a $0.1 million tax benefit associated with a net $2.8 million of non-recurring income, which impacted the effective tax rate by (3.9)%.

The tax expense for the third quarter of 2018 included a $0.2 million tax benefit associated with $0.7 million of non-recurring expenses, which impacted the effective tax rate by (4.0)%.

Excluding these non-recurring expenses, the effective tax rate increased primarily due to the mix in expected full year taxable earnings by country and a decrease in recognized discrete tax benefit items.

The year-to-date effective tax rate was 12.5% for the third quarter of 2019 compared to 5.8% for the third quarter of 2018. The tax expense for the nine months ended September 30, 2019 included a $2.4 million tax benefit associated with $9.2 million of non-recurring expenses, which impacted the effective tax rate by (2.7)%.

The tax expense for the nine months ended September 30, 2018 included a $1.7 million tax benefit associated with $6.2 million of non-recurring expenses, which impacted the effective tax rate by (4.1)%.

Excluding these special items, the effective tax rate increased due primarily to the mix in expected full year taxable earnings by country, discrete tax expense realized in the prior year related to the exercise of soon-to-expire stock options and a favorable tax ruling from the Italian tax authorities related to the deductibility of interest expense in Italy received in the second quarter of 2018.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our foreign investments to the United States.

Liquidity and Capital Resources

Liquidity

Cash, Cash Equivalents and Restricted Cash totaled $71.7 million at September 30, 2019, as compared to $86.1 million as of December 31, 2018. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 1.8 and 1.9 as of September 30, 2019 and December 31, 2018, respectively, and our working capital was $209.6 million and $219.7 million, respectively. Our debt-to-capital ratio was 50.3% as of September 30, 2019, compared to 53.0% as of December 31, 2018.

Cash Flow From Operating Activities

Operating Activities provided $46.2 million of cash for the nine months ended September 30, 2019. Cash provided by operating activities was driven primarily by inflows from Net Earnings adding back non-cash items of $50.3 million. These cash inflows were partially offset by cash outflows resulting from an increase in Inventories of $31.4 million to support future sales growth.

Operating Activities provided $43.6 million of cash for the nine months ended September 30, 2018. Cash provided by operating activities was driven primarily by cash inflows from Net Earnings adding back non-cash items of $39.8 million and a $4.2 million increase in Employee Compensation and Benefits liabilities. These cash inflows were partially offset by cash outflows resulting from an increase in Inventories of $19.5 million to support future sales growth.

Cash Flow From Investing Activities

Investing activities during the nine months ended September 30, 2019 used $37.5 million. We used $28.2 million for net capital expenditures, which included the acquisition of a new administrative building. We also used $8.9 million for the acquisition of the Gaomei businesses, net of cash acquired.

Investing activities during the nine months ended September 30, 2018 used $10.4 million. We used $12.6 million for net capital expenditures, including investments in information technology process improvement projects, tooling related to new product development and manufacturing equipment. We also used $2.6 million to purchase a technology license and other intangibles. In addition, we received $4.0 million in proceeds due to the sale of the Waterstar business.

Cash Flow From Financing Activities

Net cash used in financing activities was $22.8 million during the first nine months of 2019. Proceeds from credit facility borrowings of $25.0 million were more than offset by payments of Short-Term and Long-Term Debt of $37.9 million and dividend payments of $12.0 million. Proceeds from the issuance of Common Stock were $2.8 million.

Net cash used in financing activities was $35.8 million during the first nine months of 2018. Dividend payments used $11.3 million and the payments of Long-Term Debt used $30.2 million, partially offset by proceeds from the issuance of Common Stock of $5.7 million.

Newly Issued Accounting Guidance

In June 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU improves financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The amendments in this ASU are effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period, which is our fiscal 2020. Early application is permitted. We will adopt this ASU beginning in 2020. We are currently evaluating the impact of this amended guidance on our consolidated financial statements and related disclosures.

Cautionary Statement Relevant to Forward-Looking Information

This Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,”

“intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include: our ability to effectively develop or manage strategic planning and growth processes; our ability to successfully upgrade and evolve our information technology systems; fluctuations in the cost, quality, or availability of raw materials and purchased components; geopolitical and economic uncertainty throughout the world; our ability to attract, retain and develop key personnel and create effective succession planning strategies; our ability to develop and commercialize new innovative products and services; our ability to integrate acquisitions; the competition in our business; our ability to successfully protect our information technology systems from cybersecurity risks; the potential disruption of our business from actions of activist investors or others; the occurrence of a significant business interruption; our ability to comply with laws and regulations; unforeseen product liability claims or product quality issues; our ability to generate sufficient cash to satisfy our debt obligations; and the relative strength of the U.S. dollar, which affects the cost of our materials and products purchased and sold internationally. We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Additional information about factors that could materially affect our results can be found in Part I, Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 31, 2018 and Part II, Item 1A of this Form 10-Q.

We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the SEC and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk since December 31, 2018. For additional information, refer to Item 7A of our 2018 annual report on Form 10-K for the year ended December 31, 2018.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Principal Financial and Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2019 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and our principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION


Item 1.	Legal Proceedings

There are no material pending legal proceedings other than ordinary routine litigation incidental to our business.

Item 1A. Risk Factors

We documented our risk factors in Item 1A of Part I of our annual report on Form 10-K for the fiscal year ended December 31, 2018. There have been no material changes to our risk factors since the filing of that report.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

On October 31, 2016, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. This is in addition to the 392,263 shares remaining under our prior repurchase program. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our share-based compensation programs. As of September 30, 2019, our 2017 Credit Agreement restricts the payment of dividends or repurchasing of stock requiring that, after giving effect to such payments, no default exists or would result from such payment. Additionally, cash dividends are restricted to $5.0 million per quarter and approved levels of other restricted

payments range from $50.0 million to unlimited based on our net leverage ratio (not taking into account any acquisition holiday) after giving effect to such payment. Our Senior Notes due 2025 also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.



For the Quarter Ended September 30, 2019	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2019	243	$	64.24	—	1,392,263
August 1 - 31, 2019	1,317	69.93		—	1,392,263
September 1 - 30, 2019	—	—		—	1,392,263
Total	1,560	$	69.04	—	1,392,263


⁽¹⁾	Includes 1,560 shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by employees who exercised stock options or restricted stock under employee share-based compensation plans.


Item 6.	Exhibits



Item #	Description	Method of Filing
3i	Restated Articles of Incorporation	Incorporated by reference to Exhibit 3i to the Company’s report on Form 10-Q for the quarterly period ended June 30, 2006.
3ii	Amended and Restated By-Laws	Incorporated by reference to Exhibit 3iii to the Company’s Form 8-K dated December 14, 2010.
3iii	Articles of Amendment of Restated Articles of Incorporation of Tennant Company	Incorporated by reference to Exhibit 3iii to the Company's report on Form 10-Q for the quarterly period ended March 31, 2018.
4.1	Indenture dated as of April 18, 2017	Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 24, 2017.
31.1	Rule 13a-14(a)/15d-14(a) Certification of CEO	Filed herewith electronically.
31.2	Rule 13a-14(a)/15d-14(a) Certification of CFO	Filed herewith electronically.
32.1	Section 1350 Certification of CEO	Filed herewith electronically.
32.2	Section 1350 Certification of CFO	Filed herewith electronically.
101	The following financial information from Tennant Company's Quarterly Report on Form 10-Q for the period ended September 30, 2019, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Earnings for the three and nine months ended September 30, 2019 and 2018; (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018; (iii) Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018; (v) Consolidated Statements of Equity; and (vi) Notes to the Consolidated Financial Statements.	Filed herewith electronically.
104	Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)	Filed herewith electronically.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		TENNANT COMPANY

Date:	October 30, 2019	/s/ H. Chris Killingstad
		H. Chris Killingstad President and Chief Executive Officer

Date:	October 30, 2019	/s/ Keith A. Woodward
		Keith A. Woodward Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)